The 225-issue Nikkei average closed up 207.93 points, or 1.69 percent, at 12,546.46. On Friday, the key market gauge tumbled 297.16 points.

The Topix index of all first-section issues rose 8.72 points, or 0.84 percent, to end at 1,047.29, after dropping 19.53 points the previous trading day.

The Tokyo market kicked off the week with hefty gains, thanks to rises in U.S. equities late last week and receding concerns over the financial problems of Cyprus.

After moving in a narrow range for the rest of the morning, the Nikkei average extended gains in the afternoon, supported partly by higher index futures and firmness of other Asian markets.

The yen fell against the euro and the dollar after news about a last-minute agreement on new terms of financial aid for Cyprus worth up to €10 billion.

“The rescue deal for Cyprus, which avoided a default of the country and its exit from the eurozone for the time being, soothed the ‘risk off’ mood in the market,” said Hiroichi Nishi, equity general manager at SMBC Nikko Securities Inc.

The Tokyo market held firm throughout the session as “selling from domestic institutional investors ahead of the end of Japan’s fiscal year has already quieted down,” Nishi said.

Hopes for bold monetary easing by the Bank of Japan’s new leadership team and a moderate economic recovery in the United States continue providing support for the market, brokers said.

Winners outnumbered losers 927 to 642 in the TSE’s first section, while 138 issues were unchanged. Volume fell to 2.696 billion shares from Friday’s 2.876 billion.